The Best Way to Help the Poor? Make a Profit Doing It.

At first it’s hard to swallow: to make lasting impact in poor countries, you need to make a profit by selling to people who barely have any money. As Hugh Whalan pointed out in “How Misinformed Ideas About Profit Are Holding Back the World’s Poor,” most people’s gut reaction to the idea of profiting by selling to poor people is either that it’s impossible or that it’s taking advantage of poor people who would be better served by charity.[1] Upon further examination, though, making a profit is the best way to create lasting social impact.

The idea of giving goods or money away to the poor in other countries makes sense at first: how can we justify charging money to people significantly poorer than us? But, as we saw in the videos from last Thursday’s class, giving an innovative product away doesn’t mean that the poor will adopt it. Charging a small price for the product and proving its value, however, ensures that far more purchasers will use the product because of their investment in it.[2]

Even giving away a product that people will almost definitely use, such as food, poses problems. The documentary Poverty, Inc. explores how well-intentioned giving has prevented local entrepreneurs from growing their businesses and made poor countries dependent on foreign aid and charity. For instance, they tell the story of an egg farmer in Rwanda who had just started growing his business when a church started donating eggs to his area and people stopped buying what they could get for free. When the free eggs stopped coming, he could not afford to restart his business, and the area was left worse off than when it started.

This concept can be extended to social ventures that aren’t profitable: how long can they remain dependent on subsidies or donations? Once the money runs out, what will the impact be on the area? Even if the collapse of your unprofitable venture doesn’t result in the negative consequences described above, you certainly won’t have created lasting impact. A venture that makes a profit, however, won’t need to worry about donations running out.

Charging unnecessarily high prices to make large profits off of selling to the poor would be morally objectionable but also impractical; people likely wouldn’t’ be willing to make a purchase at a high price, and the venture ultimately wouldn’t be profitable. A social venture that provides a product at a price that is high enough to be profitable but low enough to be attainable for people in their target region, however, will create lasting impact by becoming a sustainable part of the local economy. Rather than worrying about donations or subsidies running dry, those companies can focus on increasing their economies of scale as well as reaching more people—and continuing to create lasting social change.

FURTHER READING

Poverty, Inc. (documentary)

Dambisa Moyo, “Dead Aid, Why Aid Is Not Working and How There is Another Way for Africa” (book)

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[1] Whalan, Hugh. “How Misinformed Ideas About Profit Are Holding Back the World’s Poor,” Fast Company, May 8, 2013, https://www.fastcompany.com/2682004/how-misinformed-ideas-about-profit-are-holding-back-the-worlds-poor.

[2] “Fighting Poverty in Kenya by Selling Water Pumps to Poor Farmers,” PBS Newshour, July 13, 2010.